FCA use grows as shippers seek more control

Thursday, June 06, 2013

Shippers are increasingly using the free carrier (FCA) Incoterm in their freight contract rather than the free on board (FOB) designation, according to an executive with Ryder.
In a blog entry this week, Lee Williams, director of business development for the retail division of Ryder Supply Chain Solutions, wrote that companies sourcing in Asia are turning to the FCA designation to start taking more control of their supply chain.
Using FCA essentially means the buyer of goods takes possession of those goods once they leave the factory door. In an FOB transaction, on the other hand, the buyer assumes possession only when the goods arrive at the destination port.
The tradeoff, Williams wrote, is more risk and costs in an FCA shipment, but also a greater degree of control for the buyer.
“FOB has been the default shipping choice for years, primarily because companies didn’t have offices in Asia or boots on the ground to arrange and track trucking and shipping. Today, with a growing presence in foreign markets and access to logistics partners working on their behalf, companies are switching to FCA,” he said.
Williams cited three primary reasons for the switch to more FCA transactions. First is the control aspect. Buyers can choose their transportation providers and have more visibility into the logistics and compliance processes.
Second, he said, using FCA allows buyers to better control costs. In FOB transactions, the seller has the ability to mark up costs such as trucking and container costs, and port, documentation and gate fees.
“While it may not seem like much, when you’re moving 30,000 containers a year, those markups add up quickly,” he wrote.
Finally, Williams said, using the FCA designation improves an importer’s visibility into its shipments. In an FOB move, the importer may only have true visibility once the goods are with the ocean carrier. That leaves the importer without a view into the inland leg on the origin side.
“If there’s a problem or delay before that point, you don’t find out until it’s too late.” - Eric Johnson